The primary purpose of a Special Needs Trust (“SNT”) for a disabled person is to prevent wastage of assets and to provide proper care for those assets. Public benefits from Social Security Income and state-paid health care are provided on a need-based basis to those who are unable to earn income on their own due to a disability. Money distributed directly to a person with a disability reduces these public benefits dollar for dollar. A properly prepared and administered SNT is a legitimate and valid tool under the rules and laws of Social Security.

Protecting Payment of Medical Expenses (Medi-Cal) Medi-Cal is California’s version of the federally funded Medicaid program. The program provides medical benefits for those in need for medical reasons. Medi-Cal qualification is not required for disabled persons receiving Social Security Income. If income is less than Medi-Cal limits, Medi-Cal services are available at no cost. Typically, the only source of income for the disabled is SSI. The SSI income that disabled people receive is less than Medi-Cal limits. Therefore, a disabled person who receives SSI also receives free medical care under the Medi-Cal program.

Income above Medi-Cal income limits requires cost sharing (SOC) of medical expenses. One of the goals of the special needs trust is to provide benefits to the disabled without counting those benefits as income. Therefore, cash outlays cannot be made to the disabled to preserve free medical care.

Protecting Receipt of Social Security Income (SSI) SSI is intended to provide funds for food, clothing, and shelter for the elderly (over 65), disabled, or blind. An individual receives less than $ 1,000 per month. Any money received by an SSI beneficiary is considered income to the beneficiary and reduces SSI benefits dollar for dollar. Payments made to third parties for food or lodging are considered payments in kind and result in a loss or reduction of approximately 33 cents of SSI benefits for every dollar spent.

Payments to third parties for goods and services other than food and shelter will not result in any reduction in the SSI benefit. These payments are key to improving the quality of life of a disabled person. Examples of allowable expenses are:

• purchase of a house, telephone, cable television, dental expenses, glasses, transportation expenses (including vehicle purchase, maintenance, gasoline), furniture, movies, and vacations.

The trustee of a special needs trust should be aware of the fine distinction between non-food and shelter items. The devil may be in the details. A movie is an allowable expense, but the popcorn bought for the movie is not. Thanksgiving dinner is an exception to the food ban just like discarded food. The discarded food is an example of the attention that has been paid to this matter.

In addition to managing trust assets, a trustee can provide a connection to the community and avoid isolation. Public charities authorized to act as trustees can provide support to the community and incur appropriate expenses. These trustees also address a major parent concern, “what will happen to our disabled child when we leave.”

These organizations pool the assets of multiple special needs trusts for management, but each individual has a separate trust account. Disbursements are made from individual accounts. They also provide community resources such as help finding suitable housing, providing medication education, life skills tutoring, social activities, and friendship.

Two examples of such nonprofits are the San Diego Special Needs Trust Foundation, which serves only San Diego, and the Proxy Parent Foundation, the Proxy Parent Foundation, which serves all of California. The web address for the San Diego Special Needs Trust Foundation is http://www.sntf-sd.org. Proxy Parent Foundation The web address for the Proxy Parent Foundation is http://www.proxyparentfoundation.org.

There are costs for these services. In an organization there is a $ 1,000 enrollment fee, a 1.5% annual administration fee with a $ 1,500 minimum annual fee, and a 1% annual bank investment fee. Tax returns, if required, are an additional cost.

Third Party Reimbursement Provision Funding Requirement: A special needs trust established by someone other than the recipient of public benefits with assets belonging to someone other than the recipient is not required to prevent trust assets from being consider resources available to the beneficiary, to contain the reimbursement provisions of 42 USCA 1396p (d) (4) (A).

Disabled Person Financing: A disabled person, under the age of 65, can establish a trust with their own assets. This trust must have investment recovery provisions. The provisions require that, upon the death of the disabled person, the trustee reimburses the State of California for the cost of all health care provided by the state.

Special Needs Trust for the Elderly

Key issues: Is it necessary as a matter of public policy? The practicality of transferring assets Does it improve the quality of life of the elderly?

The income from Social Security and Medicaid is for the needy. The concept behind a special needs trust for the elderly is to meet the requirement of having no assets to receive public benefits by “spending” or transferring assets beyond the control of the elderly. A basic moral question to ask ourselves is “should a person who can afford health care receive health care intended for the poor”? If the answer is no, then a special needs trust should be avoided.

Leaving aside the issue of morality. How practical is such confidence. Assets must be transferred out of the elder’s control. Who can be trusted with those assets. What are the gift tax implications of a transfer?

Specifically, how are retirement accounts transferred? A change in control of a retirement account is a taxable event and is taxed at prevailing income tax rates. An elder can retain retirement assets since they are not assets counted to qualify. But income will flow to the elderly and dollar for dollar will reduce public benefits. The elderly person will also receive income from social security with a further reduction in public benefits.

Finally, what are we trying to achieve here? Mainly, it is for the state of California to pay for the cost of residing in a skilled nursing facility. As a general rule of thumb, most people stay in a nursing home for about two years. The sad reality is that people don’t live that long after entering a nursing home. Suppose the cost of a respectable home is $ 10,000 per month. The savings is $ 240,000.

State-paid nursing homes are not high-end operations. They are basic minimum arrangements to satisfy the most basic needs. This is while the children enjoy the assets of their elderly father.

The quality of life of an elderly person does not improve with this type of life condition. Relying on special needs for the elderly just doesn’t make sense due to loss of control, limited benefits, and public policies.